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Higher Number of RIAs Run Afoul of State Regulators

Some folks in the industry paint a dire picture of the brokerage business, one fraught with conflicts of interest, unethical sales practices and a lower standard of care. But, in fact, last year, registered investment advisors had more bad actors than broker/dealers, according to the North American Securities Administrators Association, the voice of state securities agencies.

NASAA’s latest enforcement report says that 2017 was the first year in which enforcement actions against RIAs and their representatives significantly outnumbered those against b/ds and their reps.

From 2014 to 2016, there were a total of 1,050 actions against b/ds and their reps versus 982 against RIAs and their reps. But in 2016, the number of RIAs under investigation was up by nearly a third year-over-over. That resulted in 377 actions against such firms in 2017, up 32 percent from 2016; that compares to 270 actions against b/ds, down 11 percent YoY.

NASAA also reported a surge in actions against unregistered individuals and firms; there were 675 actions against these respondents last year, up 24 percent over the prior year. That reverses a trend seen over the last 2 years, when registered individuals and firms accounted for most of the respondents in states actions.

States currently have 515 pending investigations against unregistered individuals, which is nearly 40 percent higher than 2 years ago.

“In light of recent state enforcement efforts against fraudulent activity involving cryptocurrencies, it would not be surprising to see a sustained high level of investigations and actions against unregistered individuals and firms in the coming months,” the report said.

Overall, NASAA members reported 2,105 enforcement actions in 2017, up slightly from 2,017 in 2016. States returned $486 million in restitution to investors, up from $231 million in the prior year. Yet, penalties were down significantly to $79 million from $682 million in the prior year, a reflection, perhaps, of the decline in actions against b/ds, which tend to be larger firms.

Michael Pieciak, NASAA’s new president, recently said the group will not be advocating for fiduciary standards at the local level, despite some individual states’ efforts to do so. The organization will concentrate its efforts on making its comments clear to the Securities and Exchange Commission on its Regulation Best Interest.